Financings Of The Fortnight Does Bollywood On A Budget

With IPOs still the twitter, er, talk of the town, the relative lack thereof the past couple weeks in our little corner of the world was noticeable. So forgive us if we were distracted from our IPO perusings by a particular firm that emerged from the roadshow scrum: top Indian film producer Eros International. Your FOTF correspondent has a soft spot for Indian cinema, having visited a couple local movie houses for the full Bollywood experience on a monthlong trip to India in late 2004. (We’ve ever since lobbied for chaat vendors to roam the aisles, sport stadium style, in American movie theaters.)

Eros went public this week, but only after taking a small haircut, so we figure a more budget-conscious approach to Bollywood spectacle is a better way to go.

FOTF is all about self-improvement, if you hadn’t noticed. We always make the healthy lifestyle choices: organic sustainable olives in the martini, strengthening those abs and buns to a bhangra beat, and regular salon visits.

Haircuts have been in the news for biotech, too, after a summer of letting it all hang out. Considered the highest profile of the current road-show warriors, Relypsa finally priced late last night after a couple of downgrades – or, if you prefer, a haircut a la Sweeney Todd. (For more, see our roundup below.) Antibody firm Xencor has amended terms, too, looking to raise $75 million by doubling its shares offered to 10.7 million and cutting its proposed price range in half. (As of this writing it hasn’t yet priced. 

Others have flat-out tabled their IPO efforts: Both gene therapy firm Celladon and diagnostic firm CardioDx postponed due to market conditions. That makes three four withdrawals or postponements in the past month. [UPDATE - On November 15 Xencor postponed its IPO.]

Companies that have made it out this year are also feeling a pinch. At the end of October, the biotech IPO class of 2013 was the best performing industry sector, up 47% as a group. (High tech, by comparison, was up 41%.) The past two weeks, however, those post-IPO biotech gains have slipped to 27% and now trail several other sectors. Still not too shabby. Who wouldn’t want a portfolio of stocks that are up 27% for the year? But the biotech slump, which actually started at the end of summer, is unmistakable.

Is it just a blip, a bump, or is it a big yellow flag? If we knew the answer, we wouldn’t be journalists, we’d be day traders working from home in our sweatpants, leaving after the final market bell at 1pm (FOTF is a West Coast shop all the way, dude) to do our Bollywood workout.

But here’s something to chew on. All those biotechs that went public this spring and summer? From right about now through December or so, their lock-ups are about to end. And a whole bunch of VCs who feel the hot breath of limited partners on their necks (yuck) will be looking to cash out. It won’t happen all at once, of course. Many venture investors can afford to cool their heels, as our colleague Stacy Lawrence reported in June.

But many can’t. And what might that do to stock prices? In an upcoming feature in Start-Up, Stacy dives into three recent biotech IPOs as well as the recent market dynamics. Two biotechs from the class of 2012 IPOs, Intercept Pharmaceuticals and Chimerix, recently saw their VCs sell directly into the public market, with mixed effects on the company’s shares. Will other VCs looking to sell to the public be staring down the barrel of a buyer’s market in the coming months? OrbiMed Advisors’ co-head of global equity Jonathan Silverstein doesn’t think so. “We’ve been approached on a number of IPOs by public investors who say they only have a 2% position and they want 5%. We are not necessarily interested in selling, but it’s nice to hear now.” OrbiMed's LPs don't seem too worried. That Silverstein quote comes from a recent story in “The Pink Sheet” DAILY about the firm’s new $735 million venture fund.

In the next START-UP, we break down the recent IPOs and acquisitions in OrbiMed’s portfolio to see what helped them sell that new fund. Until then, break it down old school style. Time for the Electric Slide.

At least it’s better than doing the Biotech Slump. If you prefer the Harlem Shake, well, there’s not much we can do for you. Get it out of your system, then crunk on over to the latest edition of…

Relypsa: The polymeric therapeutic specialists priced their initial public offering late Thursday, November 14, selling 6.85 million shares at $11 each for net proceeds of $67.4 million. It’s quite a comedown from the firm’s initial plans, which aimed for a top goal of $138 million back in October. The ambitious target was driven in large part by the amount of cash venture backers have sunk into the company:  more than $180 million over three financing rounds, according to Strategic Transactions. The firm spun out of Amgen in 2007 after that company bought Relypsa’s predecessor Ilypsa for its phosphate binder to treat hyperphosphatemia. That drug stalled soon after, but Relypsa carried on with former Ilypsa employees. 5AM Ventures and New Leaf Venture Partners led the $33 million Series A and were joined by the Sprout Group, Delphi Ventures, CMEA Ventures, and Mediphase Venture Partners. OrbiMed Advisors, which came in to lead the massive $70 million Series B round, is the largest shareholder going into the IPO, with a 44% stake. 5AM is next with 22%. Existing investors – including a limited partner of the venture investors – have said they could buy as much as $20 million worth of the IPO shares, according to the company’s final registration statement. Underwriters led by Morgan Stanley, BofA Merrill Lynch and Cowen have the option to sell 1.03 million additional shares. – A.L.

Synta Pharmaceuticals: The small molecule oncology developer raised $52 million in a sale of 14 million shares of common stock at $3.75 each as it moves toward a pivotal trial for its lead program, ganetespib in non-small cell lung cancer. It’s the second time around for the Massachusetts firm, whose first lead drug, elescomol, failed in Phase III trials for stage IV metastatic melanoma. The company learned in 2009 that more people died on an elesclomol/chemotherapy combination than on chemo alone. It went into restructuring mode and emerged with ganetespib, a heat shock protein 90 (hsp90) inhibitor. Its most advanced hsp90 competitor, retaspimycin from Infinity Pharmaceuticals, has been terminated, which leaves ganetespib breathing room but also raises questions whether the entire class is compromised. Synta told analysts earlier this month about adjustments to its Phase III trial, dubbed GALAXY-2, that will shift the patient enrollment away from Eastern Europe and boost the study population. The disclosures didn’t stop the slide in Synta’s share price, which has fallen nearly 50% since late October. The firm is also working on a small molecule drug conjugation platform to link an hsp90 inhibitor to a toxic payload. Underwriters led by Jefferies have the option to buy up to 2.1 million more shares. – A.L.

ArGEN-X: The Belgian antibody company has raised 5 million Euros ($6.8 million) to extend its Series B round to $44 million. The new infusion of cash comes from Flemish regional investment firm PMV. The cash will go toward ArGEN-X’s preclinical compound ARGX-113, being developed to treat autoimmune disease. The compound is an antibody fragment that aims to clear autoantibodies – the antibodies produced by a patient’s own immune system that go haywire and cause autoimmune disorders. The company’s technology used to create ARGX-113 is dubbed “ABDEG,” or antibodies that enhance IgG degradation. The firm also has two antibodies in the clinic, an anti-CD70 agent and an anti-cMET agent, both in Phase Ib. Both were discovered using a different platform, SIMPLE, based on the immune system of llamas.  The first tranche of ArGEN-X’s B round was co-led by OrbiMed Advisors and Seventure Partners and included existing investors Forbion Capital Partners, Credit Agricole Private Equity, LSP, BioGeneration Ventures, the Erasmus Biomedical Fund, Thuja Capital and VIB. Its Series A round brought in $19 million over two tranches. – A.L. 

Karyopharm Therapeutics: In the fortnight’s only other IPO, Karyopharm netted $101 million by selling 6.8 million shares at $16 a piece. Despite all the talk of haircuts and postponements elsewhere, the offer priced at the top end of its proposed range. The IPO cash matches what Karyopharm raised in two private rounds from institutional investors (Delphi Ventures) and wealthy individuals. Before IPO, Karyopharm was 46% 61% owned by Chione and Plio, two investment vehicles that share the same address on the island of Cyprus and are linked to Slava Smolokowski, a Polish energy baron who has also put his considerable fortune into Broadway. (His big hit was as a producer was Fela!, a hugely acclaimed Broadway show about the legendary Nigerian musician and political activist. According to Playbill, Smolokowski was educated as a musician and played in a rock band for some time.) The firm says it has discovered and developed small molecules to inhibit the nuclear export protein XPO1, which cancer cells amplify to promote the transmission of tumor suppression proteins from the nucleus to the cytoplasm. Getting those suppression proteins out of the nucleus gives a tumor cell a better chance to survive. By inhibiting XO1, Karyopharm believes it can trap the suppression proteins in the nucleus and let them do their job – trigger apoptosis. Karyopharm’s technology was brought out of Epix Pharmaceuticals, which was liquidated in the late ‘00s. Epix CEO Michael Kauffman and SVP of drug development Sharon Shacham are behind Karyopharm, and they licensed key IP from Epix. The company says half the IPO proceeds will help pay for Phase II/III trials for selinexor, its lead candidate, which Karyopharm says in its filing documents has already administered to more than 170 patients in three Phase I trials for various malignancies. Phase II/III could start in two cancer indications in the first half of 2014. – A.L.

Best of the Rest (Highlights of Other Financing Activity This Fortnight): Liquidia Technologies spun out ophthalmic-focused start-up Envisia Therapeutics, which received $25M in Series A financing and will use Liquidia’s PRINT technology to develop a new glaucoma treatment…less than a year after reverse merging to go public, Ocera Therapeutics completed a $28M PIPE to fund studies of its oral and IV hepatic encephalopathy candidate OCR002…to fund commercialization of Esbriet in Europe and various other development and regulatory activities surrounding the IPF drug, InterMune raised $84M in a FOPO…After reporting growth in the Q3 2013 net product sales for its sold marketed myelofibrosis product Jakafi, Incyte sold two $350M series of convertible senior notes…TVM Capital officially announced (as Start-Up reported in September) that it is no longer investing in IT,  but instead focusing on life sciences and health care. -- Amanda Micklus

Deals Of The Week Wonders: Who Will Buy Onyx?

When was the last time biotech had a really juicy, successful, high-stakes bidding war? Likely the $10.2 billion Pharmasset acquisition by Gilead Sciences announced in late 2011, which since has played out quite nicely for the latter. Not only did that deal help drive Gilead shares up by about 150% since the deal announcement, but it also tipped off the start of a very long bull-run for the sector.

If Onyx Pharmaceuticals attracts a bevy of bidders, garners a tidy premium for shareholders, and proves a strong asset for an acquirer, its activities could help bolster a flagging biotech stock market. Mostly in June, the NASDAQ Biotechnology Index has shed almost all of a tidy 9% it gained in the first few weeks of May.

If a competitive Onyx acquisition plays out, a deal could come in the fall. That would coincide perfectly with a roster of large-cap clinical and regulatory milestones – which together might breathe life back into a biotech rally that’s getting very long-in-the-tooth.

For now, Wall Street seems certain that the biotech will attract a flock of suitors, culminating in a deal. In fact, Onyx shares are trading well above Amgen’s $120 per share bid, which Onyx publicly confirmed on June 30 that it had rejected. It hired Centerview Partners to contact other potential acquirers, but said it already had interest from undisclosed third parties. Onyx shares closed at $133.52 on July 3, giving the biotech a $9.7 billion market cap.

Potential bidders could include a number of pharmas with existing oncology franchises that need to bolster their bottom lines, such as Pfizer and Merck & Co. Also in line could be established players in the multiple myeloma (MM) market including Celgene and Takeda, in addition to likely pharma players betting on MM monoclonal antibodies such as Bristol-Myers Squibb and Johnson & Johnson. J&J is partnered with Takeda on MM treatment Velcade (bortezomib).

Onyx investor Oliver Marti of Columbus Circle Investors expects to see more than a half-dozen potential suitors emerge, with an acquisition taking about three months to play out. He expects other companies ultimately will prove more aggressive than Amgen, although he does expect Amgen to raise its bid. Marti thinks $140 per share would be an acceptable price.

Amgen has done only a handful of billion-dollar deals. In 2001, Amgen acquired inflammation company Immunex for $17.9 billion in cash and stock. That’s its only deal for more than a couple billion dollars. Since then, it’s done four deals in the roughly $1 billion to $2 billion range including $2.2 billion for antibody play Abgenix  in 2005, $1.3 billion in a stock swap for gene expression regulation company Tularik  in 2004, up to $1 billion in cash and milestones for cancer vaccine company BioVex  in 2011 and $1 billion in cash for antibody company Micromet in 2012, according to Elsevier’s Strategic Transactions database.

“Pfizer and Bayer are natural candidates, Takeda could be a player as well,” added Dallas Webb of BB Biotech, also an Onyx investor. He anticipates the next round of bids will start at $130 and “depending on the number of bidders should go north of that.” He expects more clarity within the next month on the acquisition process.

Various analysts have pegged a likely Onyx per-share sale price in the roughly $135 to $148 range. On top of that, there could be a contingent value right, particularly for oral MM proteasome inhibitor oprozomib. Gene Mack of Brean Capital proposed a $135 buyout share price, with a CVR of about $30 tied to oprozomib approvals in relapsed/refractory and newly diagnosed MM patients, as well as sales milestones based on up to $2 billion.

Pfizer and Bayer are major Onyx partners. Kidney and liver cancer drug Nexavar (sorafenib) as well as colorectal cancer and gastrointestinal stromal tumor treatment Stivarga (regorafenib) both resulted from the Bayer partnership. Bayer evenly splits Nexavar profits globally with Onyx, excluding Japan, and pays Onyx a 20% net royalty on Stivarga global net sales. The partners recently submitted in the U.S. and EU for Nexavar to treat thyroid cancer.

Onyx co-promotes Stivarga under a fee-for-service arrangement, Bayer has the right to terminate the Stivarga co-promote under a change-of-control agreement. But the Nexavar and Stivarga royalties would survive a change-of-control. Onyx was savvy enough to add that to an October 2011 renegotiation of its Bayer partnership, likely in preparation for a clean acquisition down the road.

Wall Street is skeptical that Bayer would buy Onyx in its entirety, although it may seek to fully capture Nexavar and Stivarga rights. Analyst Tim Race of Deutsche Bank, who covers Bayer, noted in a June 28 call that Bayer long has maintained that buying its biotech partners usually is too expensive and that, given its full pipeline, it doesn't need a major new product at this time. He added that Bayer is very hard-nosed about price and likely to walk away from a high valuation. In addition, Bayer would need to raise debt, a move that would damage its credit rating – something Race sees Bayer as unlikely to do.

Onyx partner Pfizer may be a more likely bidder, as the big pharma has made building an oncology franchise a top priority. Onyx and Pfizer have a partnership dating back to 1995 for high-profile Phase III breast cancer candidate palbociclib (formerly PD-991), which recently received breakthrough therapy designation from FDA.

Onyx stands to earn an 8% royalty on palbociclib should the compound get to market. That revenue stream could amount to almost a half-billion in 2026, when analysts expect the drug could generate around $6 billion in sales. If Pfizer really believes in this product, it might be motivated to capture all the palbociclib upside and also add likely blockbuster multiple myeloma drug Kyprolis (carfilzomib).

Existing MM competitors also are likely Onyx acquirers. Celgene's revenue is underpinned largely by MM immunomodulator Revlimid (lenalidomide), which increasingly is being used and tested in combination with Onyx’s Kyprolis. Takeda and J&J market MM proteasome inhibitor Velcade (bortezomib), which Takeda gained when it bought Millennium Pharmaceuticals Ltd.. With the same mechanism of action as Kyprolis and a 2017 patent expiry, Takeda likely needs a replacement. For now, it’s focused on developing its own oral MM proteasome inhibitor, MLN9708.

BMS and J&J also have bets on MM monoclonal antibodies, which are expected to bear fruit in the next few years. AbbVie and Bristol are partnered on Phase III elotuzumab, while Genmab and Janssen Biotech, a unit of J&J, have Phase I/II daratumumab. Daratumumab has Fast Track and Breakthrough Designations for fourth-line MM. These are likely to be used sequentially or in combination with Kyprolis, making Onyx a potentially good fit.

Speculation already has started about which biotech with potential oncology blockbuster companies could be next for a potential take-out. Mark Schoenebaum of ISI Group suggested Ariad Pharmaceuticals, Seattle Genetics and Medivation.

A long Onyx sale saga is likely just at the beginning of unfolding. While DOTW waits for the next shoe to drop, take a look at some actual deals in this week's edition of …

Pfizer/Bioventus: Pfizer will license worldwide rights to its bone morphogenic protein (BMP) portfolio to orthopedic biologics specialist Bioventus. In return, Pfizer will receive an upfront payment, milestones and royalties. Financial terms were not disclosed. The products include a BMP in development and an rhBMP-2 in unspecified indications. The rh-BMP-2 product appears to have entered Pfizer’s portfolio with its acquisition of Wyeth; Wyeth’s pipeline as of May 2009 described a BMP-2 program with indications in fracture repair and hip osteoporosis. Pfizer has agreed to undertake certain early development work for the BMP asset in soft-tissue indications and will manufacture the rhBMP-2 for Bioventus. Bioventus was spun out of U.K. device firm Smith & Nephew with funding from Essex Woodlands in 2012. The company recently has retained the services of BMP experts John Wozney and Howard Seeherman. It plans to soon open a research laboratory in Boston to develop and commercialize the BMP assets. With this deal, Pfizer continues to cull and prioritize its portfolio. The BMP agreement follows a spate of out-licensing in the wake of the Wyeth acquisition, including the CTLA-4 monoclonal antibody tremelimumab to AstraZeneca PLC and the irreversible TKI neratinib to newly formed Puma Biotechnology, both in October 2011. -- Mike Goodman

Merck/Xencor: Xencor already has a string of big pharma partners, but the small California-based biotech is hoping to get the financial flexibility to bring its own internal programs forward. Its latest deal brings the company one step closer to its goals.Xencor announced on July 2 that it has granted Merck a license to a Xencor Fc engineering patent for a monoclonal antibody for use in an undisclosed product that Merck is already working on. The New Jersey pharma also has an option to license the same intellectual property for future products. Merck paid an undisclosed upfront and agreed to pay annual maintenance fees, as well as milestone payments and sales royalties on any products that result. “Merck found an antibody that they needed that we had already patented,” said Xencor CEO Bassil Dahiyat. “They needed it for a use that we hadn’t thought of until they called us,” he added. The companies did not disclose what product the patent applies to or how it would be used. -- Lisa LaMotta

Avanir/OptiNose: CNS-focused Avanir Pharmaceuticals is licensing a proprietary intranasal delivery system from OptiNose for use in developing and commercializing a fast-acting, dry-powder inhaled form of sumatriptan for acute migraine. In the deal announced July 2, Avanir is paying $20 million upfront to license OptiNose’s Breath Powered delivery system; Avanir said it should be ready to file an NDA by early 2014 for AVP-825, the resulting drug/device combination product. The two companies will share development costs and work together on putting together the NDA submission. Avanir will assume responsibility for regulatory, manufacturing, supply-chain and commercialization activities for the product. OptiNose could earn up to $90 million in clinical, regulatory and commercial milestones related to ‘825, as well as tiered royalties on North American sales. Avanir says ‘825, if approved, would the first and only fast-acting, dry-powder inhalable version of sumatriptan for migraine. In a Phase III clinical trial, the OptiNose device demonstrated rapid absorption and provided relief using approximately 80% less drug than is contained in the most commonly prescribed oral sumatriptan product, the company added. -- Joseph Haas